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Investments (Tables) | 9 Months Ended
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Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract] |
Available for sale fixed maturities | Available for sale fixed maturities at September 30, 2019 and December 31, 2018, consisted of the following (in millions):
| September 30, 2019 |  | December 31, 2018
Amortized Cost |  | Gross Unrealized |  | Net Unrealized |  | Fair Value |  | Amortized Cost |  | Gross Unrealized |  | Net Unrealized |  | Fair Value
Gains |  | Losses |  | Gains |  | Losses
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | 225 |  |  | $ | 5 |  |  | $ | (1 | ) |  | $ | 4 |  |  | $ | 229 |  |  | $ | 235 |  |  | $ | 1 |  |  | $ | (3 | ) |  | $ | (2 | ) |  | $ | 233 |
States, municipalities and political subdivisions | 6,519 |  |  | 446 |  |  | (1 | ) |  | 445 |  |  | 6,964 |  |  | 6,825 |  |  | 169 |  |  | (55 | ) |  | 114 |  |  | 6,939 |
Foreign government | 160 |  |  | 4 |  |  | — |  |  | 4 |  |  | 164 |  |  | 140 |  |  | 2 |  |  | — |  |  | 2 |  |  | 142 |
Residential MBS | 2,274 |  |  | 292 |  |  | (4 | ) |  | 288 |  |  | 2,562 |  |  | 2,476 |  |  | 277 |  |  | (9 | ) |  | 268 |  |  | 2,744 |
Commercial MBS | 928 |  |  | 38 |  |  | — |  |  | 38 |  |  | 966 |  |  | 905 |  |  | 17 |  |  | (2 | ) |  | 15 |  |  | 920 |
Collateralized loan obligations | 4,319 |  |  | 13 |  |  | (18 | ) |  | (5 | ) |  | 4,314 |  |  | 4,350 |  |  | 1 |  |  | (73 | ) |  | (72 | ) |  | 4,278 |
Other asset-backed securities | 5,540 |  |  | 201 |  |  | (10 | ) |  | 191 |  |  | 5,731 |  |  | 5,431 |  |  | 129 |  |  | (27 | ) |  | 102 |  |  | 5,533 |
Corporate and other | 23,369 |  |  | 1,234 |  |  | (30 | ) |  | 1,204 |  |  | 24,573 |  |  | 21,475 |  |  | 167 |  |  | (434 | ) |  | (267 | ) |  | 21,208 |
Total fixed maturities | $ | 43,334 |  |  | $ | 2,233 |  |  | $ | (64 | ) |  | $ | 2,169 |  |  | $ | 45,503 |  |  | $ | 41,837 |  |  | $ | 763 |  |  | $ | (603 | ) |  | $ | 160 |  |  | $ | 41,997 |
Equity securities reported at fair value | Equity securities, which are reported at fair value with holding gains and losses recognized in net earnings, consisted of the following at September 30, 2019 and December 31, 2018 (in millions):
| September 30, 2019 |  | December 31, 2018
|  |  |  |  | Fair Value over (under) Cost |  |  |  |  |  | Fair Value over (under) Cost
| Actual Cost |  |  |  |  | Actual Cost |  |  |
|  | Fair Value |  |  |  | Fair Value |
Common stocks | $ | 1,166 |  |  | $ | 1,261 |  |  | $ | 95 |  |  | $ | 1,241 |  |  | $ | 1,148 |  |  | $ | (93 | )
Perpetual preferred stocks | 732 |  |  | 743 |  |  | 11 |  |  | 705 |  |  | 666 |  |  | (39 | )
Total equity securities carried at fair value | $ | 1,898 |  |  | $ | 2,004 |  |  | $ | 106 |  |  | $ | 1,946 |  |  | $ | 1,814 |  |  | $ | (132 | )
Available for sale securities in a continuous unrealized loss position | The following tables show gross unrealized losses (dollars in millions) on available for sale fixed maturities by investment category and length of time that individual securities have been in a continuous unrealized loss position at the following balance sheet dates.
| Less Than Twelve Months |  | Twelve Months or More
Unrealized Loss |  | Fair Value |  | Fair Value as % of Cost |  | Unrealized Loss |  | Fair Value |  | Fair Value as % of Cost
September 30, 2019 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | — |  |  | $ | — |  |  | — | % |  | $ | (1 | ) |  | $ | 49 |  |  | 98 | %
States, municipalities and political subdivisions | — |  |  | 54 |  |  | 100 | % |  | (1 | ) |  | 74 |  |  | 99 | %
Foreign government | — |  |  | 47 |  |  | 100 | % |  | — |  |  | — |  |  | — | %
Residential MBS | (3 | ) |  | 144 |  |  | 98 | % |  | (1 | ) |  | 69 |  |  | 99 | %
Commercial MBS | — |  |  | 13 |  |  | 100 | % |  | — |  |  | — |  |  | — | %
Collateralized loan obligations | (6 | ) |  | 1,063 |  |  | 99 | % |  | (12 | ) |  | 1,255 |  |  | 99 | %
Other asset-backed securities | (4 | ) |  | 518 |  |  | 99 | % |  | (6 | ) |  | 83 |  |  | 93 | %
Corporate and other | (16 | ) |  | 1,118 |  |  | 99 | % |  | (14 | ) |  | 370 |  |  | 96 | %
Total fixed maturities | $ | (29 | ) |  | $ | 2,957 |  |  | 99 | % |  | $ | (35 | ) |  | $ | 1,900 |  |  | 98 | %
December 31, 2018 |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
U.S. Government and government agencies | $ | — |  |  | $ | 41 |  |  | 100 | % |  | $ | (3 | ) |  | $ | 120 |  |  | 98 | %
States, municipalities and political subdivisions | (23 | ) |  | 1,497 |  |  | 98 | % |  | (32 | ) |  | 902 |  |  | 97 | %
Foreign government | — |  |  | 18 |  |  | 100 | % |  | — |  |  | 4 |  |  | 100 | %
Residential MBS | (4 | ) |  | 279 |  |  | 99 | % |  | (5 | ) |  | 139 |  |  | 97 | %
Commercial MBS | (1 | ) |  | 147 |  |  | 99 | % |  | (1 | ) |  | 30 |  |  | 97 | %
Collateralized loan obligations | (61 | ) |  | 3,540 |  |  | 98 | % |  | (12 | ) |  | 197 |  |  | 94 | %
Asset-backed securities | (16 | ) |  | 1,866 |  |  | 99 | % |  | (11 | ) |  | 432 |  |  | 98 | %
Corporate and other | (306 | ) |  | 10,378 |  |  | 97 | % |  | (128 | ) |  | 2,078 |  |  | 94 | %
Total fixed maturities | $ | (411 | ) |  | $ | 17,766 |  |  | 98 | % |  | $ | (192 | ) |  | $ | 3,902 |  |  | 95 | %
Roll forward of cumulative credit portion of other-than-temporary impairments on fixed maturity securities | A progression of the credit portion of other-than-temporary impairments on fixed maturity securities for which the non-credit portion of an impairment has been recognized in other comprehensive income is shown below (in millions):
| 2019 |  | 2018
Balance at June 30 | $ | 140 |  |  | $ | 144 |
Additional credit impairments on: |  |  |
Previously impaired securities | — |  |  | — |
Securities without prior impairments | — |  |  | — |
Reductions due to sales or redemptions | (3 | ) |  | (1 | )
Balance at September 30 | $ | 137 |  |  | $ | 143 |
Balance at January 1 | $ | 142 |  |  | $ | 145 |
Additional credit impairments on: |  |  |
Previously impaired securities | — |  |  | — |
Securities without prior impairments | — |  |  | 1 |
Reductions due to sales or redemptions | (5 | ) |  | (3 | )
Balance at September 30 | $ | 137 |  |  | $ | 143 |
Available for sale fixed maturity securities by contractual maturity date | The table below sets forth the scheduled maturities of available for sale fixed maturities as of September 30, 2019 (dollars in millions). Securities with sinking funds are reported at average maturity. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.
| Amortized |  | Fair Value
Cost |  | Amount |  | %
Maturity |  |  |  |  |
One year or less | $ | 2,223 |  |  | $ | 2,249 |  |  | 5 | %
After one year through five years | 10,338 |  |  | 10,742 |  |  | 24 | %
After five years through ten years | 13,997 |  |  | 14,927 |  |  | 33 | %
After ten years | 3,715 |  |  | 4,012 |  |  | 8 | %
| 30,273 |  |  | 31,930 |  |  | 70 | %
Collateralized loan obligations and other ABS (average life of approximately 4.5 years) | 9,859 |  |  | 10,045 |  |  | 22 | %
MBS (average life of approximately 4.5 years) | 3,202 |  |  | 3,528 |  |  | 8 | %
Total | $ | 43,334 |  |  | $ | 45,503 |  |  | 100 | %
Components of the net unrealized gain on securities, included in Accumulated Other Comprehensive Income | The following table shows (in millions) the components of the net unrealized gain on securities that is included in AOCI in AFG’s Balance Sheet.
| Pretax |  | Deferred Tax |  | Net
September 30, 2019 |  |  |  |  |
Net unrealized gain on: |  |  |  |  |
Fixed maturities — annuity segment (*) | $ | 1,777 |  |  | $ | (373 | ) |  | $ | 1,404 |
Fixed maturities — all other | 392 |  |  | (83 | ) |  | 309 |
Total fixed maturities | 2,169 |  |  | (456 | ) |  | 1,713 |
Deferred policy acquisition costs — annuity segment | (760 | ) |  | 160 |  |  | (600 | )
Annuity benefits accumulated | (259 | ) |  | 54 |  |  | (205 | )
Unearned revenue | 15 |  |  | (3 | ) |  | 12 |
Total net unrealized gain on marketable securities | $ | 1,165 |  |  | $ | (245 | ) |  | $ | 920 |
December 31, 2018 |  |  |  |  |
Net unrealized gain on: |  |  |  |  |
Fixed maturities — annuity segment (*) | $ | 101 |  |  | $ | (21 | ) |  | $ | 80 |
Fixed maturities — all other | 59 |  |  | (13 | ) |  | 46 |
Total fixed maturities | 160 |  |  | (34 | ) |  | 126 |
Deferred policy acquisition costs — annuity segment | (42 | ) |  | 9 |  |  | (33 | )
Annuity benefits accumulated | (14 | ) |  | 3 |  |  | (11 | )
Unearned revenue | 1 |  |  | — |  |  | 1 |
Total net unrealized gain on marketable securities | $ | 105 |  |  | $ | (22 | ) |  | $ | 83 |
(*) Net unrealized gains on fixed maturity investments supporting AFG’s annuity benefits accumulated.
Net investment income earned and investment expenses incurred | The following table shows (in millions) investment income earned and investment expenses incurred.
| Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Investment income: |  |  |  |  |  |  |
Fixed maturities | $ | 475 |  |  | $ | 440 |  |  | $ | 1,422 |  |  | $ | 1,283 |
Equity securities: |  |  |  |  |  |  |
Dividends | 22 |  |  | 19 |  |  | 66 |  |  | 59 |
Change in fair value (*) | 17 |  |  | 2 |  |  | 35 |  |  | 16 |
Equity in earnings of partnerships and similar investments | 43 |  |  | 41 |  |  | 109 |  |  | 128 |
Other | 36 |  |  | 31 |  |  | 95 |  |  | 82 |
Gross investment income | 593 |  |  | 533 |  |  | 1,727 |  |  | 1,568 |
Investment expenses | (5 | ) |  | (6 | ) |  | (17 | ) |  | (16 | )
Net investment income | $ | 588 |  |  | $ | 527 |  |  | $ | 1,710 |  |  | $ | 1,552 |
(*) Although the change in the fair value of the majority of AFG’s equity securities is recorded in realized gains (losses) on securities, AFG records holding gains and losses in net investment income on equity securities classified as “trading” under previous guidance and on a small portfolio of limited partnership and similar investments that do not qualify for the equity method of accounting.
Realized gains (losses) and changes in unrealized appreciation (depreciation) related to fixed maturity and equity security investments | Realized gains (losses) and changes in unrealized appreciation (depreciation) included in AOCI related to fixed maturity and equity security investments are summarized as follows (in millions):
| Three months ended September 30, 2019 |  | Three months ended September 30, 2018
| Realized gains (losses) |  |  |  | Realized gains (losses) |  |
| Before Impairments |  | Impairments |  | Total |  | Change in Unrealized |  | Before Impairments |  | Impairments |  | Total |  | Change in Unrealized
Fixed maturities | $ | 9 |  |  | $ | (14 | ) |  | $ | (5 | ) |  | $ | 367 |  |  | $ | — |  |  | $ | (2 | ) |  | $ | (2 | ) |  | $ | (213 | )
Equity securities | (16 | ) |  | — |  |  | (16 | ) |  | — |  |  | 33 |  |  | — |  |  | 33 |  |  | — |
Mortgage loans and other investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other (*) | (2 | ) |  | 5 |  |  | 3 |  |  | (230 | ) |  | 3 |  |  | — |  |  | 3 |  |  | 89 |
Total pretax | (9 | ) |  | (9 | ) |  | (18 | ) |  | 137 |  |  | 36 |  |  | (2 | ) |  | 34 |  |  | (124 | )
Tax effects | 2 |  |  | 2 |  |  | 4 |  |  | (29 | ) |  | (8 | ) |  | 1 |  |  | (7 | ) |  | 26 |
Net of tax | $ | (7 | ) |  | $ | (7 | ) |  | $ | (14 | ) |  | $ | 108 |  |  | $ | 28 |  |  | $ | (1 | ) |  | $ | 27 |  |  | $ | (98 | )
| Nine months ended September 30, 2019 |  | Nine months ended September 30, 2018
| Realized gains (losses) |  |  |  | Realized gains (losses) |  |
| Before Impairments |  | Impairments |  | Total |  | Change in Unrealized |  | Before Impairments |  | Impairments |  | Total |  | Change in Unrealized
Fixed maturities | $ | 23 |  |  | $ | (20 | ) |  | $ | 3 |  |  | $ | 2,009 |  |  | $ | 3 |  |  | $ | (3 | ) |  | $ | — |  |  | $ | (1,150 | )
Equity securities | 210 |  |  | — |  |  | 210 |  |  | — |  |  | (39 | ) |  | — |  |  | (39 | ) |  | — |
Mortgage loans and other investments | 3 |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other (*) | (1 | ) |  | 7 |  |  | 6 |  |  | (949 | ) |  | 11 |  |  | — |  |  | 11 |  |  | 484 |
Total pretax | 235 |  |  | (13 | ) |  | 222 |  |  | 1,060 |  |  | (25 | ) |  | (3 | ) |  | (28 | ) |  | (666 | )
Tax effects | (49 | ) |  | 3 |  |  | (46 | ) |  | (223 | ) |  | 5 |  |  | 1 |  |  | 6 |  |  | 140 |
Net of tax | $ | 186 |  |  | $ | (10 | ) |  | $ | 176 |  |  | $ | 837 |  |  | $ | (20 | ) |  | $ | (2 | ) |  | $ | (22 | ) |  | $ | (526 | )
(*) Primarily adjustments to deferred policy acquisition costs and reserves related to the annuity business.
Holding gains (losses) on equity securities still held | AFG recorded net holding gains (losses) on equity securities during the first nine months of 2019 and 2018 on securities that were still owned at September 30, 2019 and September 30, 2018 as follows (in millions):
| Three months ended September 30, |  | Nine months ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Included in realized gains (losses) | $ | (24 | ) |  | $ | 25 |  |  | $ | 146 |  |  | $ | (51 | )
Included in net investment income | 17 |  |  | 2 |  |  | 34 |  |  | 16 |
| $ | (7 | ) |  | $ | 27 |  |  | $ | 180 |  |  | $ | (35 | )
Gross realized gains and losses on available for sale fixed maturity and equity security investments | Gross realized gains and losses (excluding impairment write-downs and mark-to-market of derivatives) on available for sale fixed maturity investment transactions consisted of the following (in millions):
| Nine months ended September 30,
2019 |  | 2018
Gross gains | $ | 20 |  |  | $ | 19 |
Gross losses | (12 | ) |  | (8 | )

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